UCITS ETF is similar to VGTSX

For residents of the United Arab Emirates.
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momutsafamd
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Joined: Tue Jun 09, 2020 9:35 am

UCITS ETF is similar to VGTSX

Post by momutsafamd »

Hi everyone,

Ive been reading alot lately , and have been interesting in this portfolio

VFINX Vanguard 500 Index Investor 25%
NAESX Vanguard Small Cap Index 25%
VGTSX Vanguard Total International Stock Index 25%
VBMFX Vanguard Total Bond Market Index 25%

I like this because of the following reasons:
1.I get exposure to S&P 500, International market(including emerging) and small cap.
2. I can define how how much to allocate between US and International, as opposed one fund where the US market/International allocation is fixed

So, my next step was to try an replicate this with UCITS domiciled ETFs:

VUAG Vanguard S&P 500 UCITS ETF 25%
CUS1 iShares MSCI USA Small Cap UCITS ETF 25%
AGGU iShares Core Global Aggregate Bond UCITS ETF 25%

But, I could not find any UCITS ETF is similar to VGTSX.

1. Do you know of any fund similar to VGTSX?
2. Im not sure if I need small cap US - Im just not sure if its overcomplicating things with no benefit.

Thanks
TedSwippet
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Location: UK

Re: UCITS ETF is similar to VGTSX

Post by TedSwippet »

momutsafamd wrote: Sun Jun 14, 2020 11:33 am But, I could not find any UCITS ETF is similar to VGTSX.
Might Vanguard Canada's VDU ETF work for you?

https://www.vanguardcanada.ca/advisors/ ... 558/equity

It is not UCITS -- I don't know of any UCITS ex-US stock ETFs -- but VDU is domiciled in Canada and so won't entangle you in any of the US's unpleasant and ridiculous tax laws for nonresident aliens, which is what the preference for UCITS ETFs is mostly about. Traded on the Toronto Stock Exchange, which you may or may not have access to. I have no idea whether or not it comes with any Canadian tax issues.
rhe
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Joined: Sun Feb 26, 2017 1:10 am

Re: UCITS ETF is similar to VGTSX

Post by rhe »

"International" can be effectively reconstructed using

Europe
Asia-Pacific ex-Japan
Japan
Emerging

All of these are available as irish vanguard funds.
ICH
Posts: 244
Joined: Wed Jun 13, 2018 3:08 am

Re: UCITS ETF is similar to VGTSX

Post by ICH »

Buy VWRD/A and be done with it. The simpler the better.
rhe
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Joined: Sun Feb 26, 2017 1:10 am

Re: UCITS ETF is similar to VGTSX

Post by rhe »

ICH wrote: Thu Jun 18, 2020 3:05 pm Buy VWRD/A and be done with it. The simpler the better.
This may result in unnecessary extra taxes. For example, an investor from Japan will not only be taxed twice on dividends from Japan, but will also likely not be able to claim a refund that they would otherwise be entitled to on US dividends. This sort of investor will be better off reconstructing the world index from component parts, using the appropriate brokerage account and fund domicile for each part.
ICH
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Re: UCITS ETF is similar to VGTSX

Post by ICH »

rhe wrote: Thu Jun 18, 2020 7:18 pm
ICH wrote: Thu Jun 18, 2020 3:05 pm Buy VWRD/A and be done with it. The simpler the better.
This may result in unnecessary extra taxes. For example, an investor from Japan will not only be taxed twice on dividends from Japan, but will also likely not be able to claim a refund that they would otherwise be entitled to on US dividends. This sort of investor will be better off reconstructing the world index from component parts, using the appropriate brokerage account and fund domicile for each part.
Not familiar with the tax system in Japan. Is it applicable to Japan passport holders, residing in the UAE?
rhe
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Joined: Sun Feb 26, 2017 1:10 am

Re: UCITS ETF is similar to VGTSX

Post by rhe »

ICH wrote: Fri Jun 19, 2020 10:27 am
rhe wrote: Thu Jun 18, 2020 7:18 pm
ICH wrote: Thu Jun 18, 2020 3:05 pm Buy VWRD/A and be done with it. The simpler the better.
This may result in unnecessary extra taxes. For example, an investor from Japan will not only be taxed twice on dividends from Japan, but will also likely not be able to claim a refund that they would otherwise be entitled to on US dividends. This sort of investor will be better off reconstructing the world index from component parts, using the appropriate brokerage account and fund domicile for each part.
Not familiar with the tax system in Japan. Is it applicable to Japan passport holders, residing in the UAE?
Google suggests that the UAE has very low tax rates. If so, then for a tax resident of the UAE, the objective would be to minimize foreign dividend withholding. For example, when you hold french stock through an irish fund, I believe (but haven't 100% verified) that there is dividend withholding. On the other hand, french stock held in an accumulating fund in France or Luxembourg appears not to have any withholding. This suggests that you should buy a non-distributing CAC 40 index ETF with a french or luxembourg domicile, and you'll come out ahead.

(I'd be particularly interested if any of the above is false, because I'm doing this with my own portfolio right now!)
ICH
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Joined: Wed Jun 13, 2018 3:08 am

Re: UCITS ETF is similar to VGTSX

Post by ICH »

rhe wrote: Fri Jun 19, 2020 7:22 pm
ICH wrote: Fri Jun 19, 2020 10:27 am
rhe wrote: Thu Jun 18, 2020 7:18 pm
ICH wrote: Thu Jun 18, 2020 3:05 pm Buy VWRD/A and be done with it. The simpler the better.
This may result in unnecessary extra taxes. For example, an investor from Japan will not only be taxed twice on dividends from Japan, but will also likely not be able to claim a refund that they would otherwise be entitled to on US dividends. This sort of investor will be better off reconstructing the world index from component parts, using the appropriate brokerage account and fund domicile for each part.
Not familiar with the tax system in Japan. Is it applicable to Japan passport holders, residing in the UAE?
Google suggests that the UAE has very low tax rates. If so, then for a tax resident of the UAE, the objective would be to minimize foreign dividend withholding. For example, when you hold french stock through an irish fund, I believe (but haven't 100% verified) that there is dividend withholding. On the other hand, french stock held in an accumulating fund in France or Luxembourg appears not to have any withholding. This suggests that you should buy a non-distributing CAC 40 index ETF with a french or luxembourg domicile, and you'll come out ahead.

(I'd be particularly interested if any of the above is false, because I'm doing this with my own portfolio right now!)
Interesting perspective, but not advisable.
In line with the Bogleheads® investment philosophy, you need to:
1 Develop a workable plan
2 Invest early and often
3 Never bear too much or too little risk
4 Diversify
5 Never try to time the market
6 Use index funds when possible
7 Keep costs low
8 Minimize taxes
9 Invest with simplicity
10 Stay the course


You need to look at all these together; they are not independent.

Main costs:
a. Exchanging and sending money to your broker (depending on the amount and method chosen, this can be 0.5% - 1%)
b. Trading: depends on the broker, exchange, amount, etc, but the more funds you have -> the more trading you need to do -> the higher the cost.

For the taxes, UAE tax residents pay no income tax to the UAE authorities, so yes minimizing tax withholding is a concern. Another concern that may apply depending on the country, is minimizing tax exposure on your home country. E.g. if I buy/sell ETFs domiciled in my home country, I will be liable to pay income tax in my home country.

The main problem with breaking down the portfolio to bits and pieces is that you move against simplicity. I prefer a portfolio with 2 ETFs: One global stocks such as VWRD and one with bonds. If for some reason somebody wants to add REITs or home country exposure or small caps etc, 3 ETFs is also manageable, OK. But breaking down the global to it's constituents is too much. Who is going to rebalance 10 or more ETFs? And of course it is unlikely to stay the course with a complex portfolio.

In your example, France is approx 3% of a global stock fund (e.g. VWRD). With a 60-40 portfolio, this means France is 1.8% of your portfolio. Assuming a dividend yield of 2%, the dividend attributed to France is 0.036% of the value of your portfolio. The numbers are so small, it doesn't matter what the withholding is. And considering that to buy a CAC-40 ETF in Paris you will pay 0.1% of the trade value (min 5 USD) commission to Interactive brokers for example, you will most likely end up costlier.

P.S. Check Rick Ferri's signature
rhe
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Joined: Sun Feb 26, 2017 1:10 am

Re: UCITS ETF is similar to VGTSX

Post by rhe »

ICH wrote: Sat Jun 20, 2020 4:59 am In your example, France is approx 3% of a global stock fund (e.g. VWRD). With a 60-40 portfolio, this means France is 1.8% of your portfolio. Assuming a dividend yield of 2%, the dividend attributed to France is 0.036% of the value of your portfolio. The numbers are so small, it doesn't matter what the withholding is. And considering that to buy a CAC-40 ETF in Paris you will pay 0.1% of the trade value (min 5 USD) commission to Interactive brokers for example, you will most likely end up costlier.
Well, it depends on whether you're willing to let the UK and France proxy for all of Europe. Vanguard total world is 13% continental Europe, and there's a substantial amount of tax withholding in there (for continental Europe, a bit less than 15% for the irish ETF, if I remember correctly). If continental european dividends are a bit less than 4% in a "normal" year, and you get to avoid a withholding of a bit less than 15%, then you get to save maybe 50 bps, say. For a reasonable holding period the 0.1% commission isn't going to be that important since you only pay it when you buy and sell.

To me, the real issue is whether the loss in diversification (from not holding German, Swiss, etc. stocks) is worth 50bps of tax gains per year. It's true that it's more complex to hold a UK fund and a French fund rather than one Europe fund, but in other situations what fraction of people argue in favor of "simplicity" when it has an expense ratio that's 0.5% higher? I think the argument here is one of diversification vs. tax efficiency.
ICH
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Re: UCITS ETF is similar to VGTSX

Post by ICH »

Oh, I understand you are trying to simulate the global index but excluding a large chunk of it. To consider UK and France a proxy for all Europe, means you're disregarding Germany, Switzerland, Spain etc. That's an active bet IMO. If you similarly approximate Asia by using only Japan and China for example, then at the end the portfolio will have little resemblance to a global cap weighted portfolio.
What exactly do you have in the portfolio?
rhe
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Joined: Sun Feb 26, 2017 1:10 am

Re: UCITS ETF is similar to VGTSX

Post by rhe »

ICH wrote: Fri Jun 26, 2020 10:23 am Oh, I understand you are trying to simulate the global index but excluding a large chunk of it. To consider UK and France a proxy for all Europe, means you're disregarding Germany, Switzerland, Spain etc. That's an active bet IMO. If you similarly approximate Asia by using only Japan and China for example, then at the end the portfolio will have little resemblance to a global cap weighted portfolio.
What exactly do you have in the portfolio?
In my particular tax situation, Europe is the only part of the world where there are many similar countries that have low-cost ETFs and substantially different tax costs. That is, the rest of my portfolio matches an "all world" index.

My recollection is that this sort of decision-making (costs vs. diversification) is one of the reasons for the claim that all investing is active. Guilty as charged!
Suliman
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Re: UCITS ETF is similar to VGTSX

Post by Suliman »

ICH wrote: Thu Jun 18, 2020 3:05 pm Buy VWRD/A and be done with it. The simpler the better.
This is the right answer.
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